XP will most certainly boot from an external drive.
The only thing needed to implement booting from an external drive is support from the
motherboard's BIOS to recognized the drive and set it as a bootable option. Most
motherboards made in the last 2 years will boot from an external USB, firewire
or SATA drive.
Regards.
Out the LAN card, down the cable, through the router,
out the gateway, to the ISP...nothin' but net!